. >> very much likely contining to flatten.n that environment we of the paint strong growth, inflation maybe ticks up a little bit. it doesn't get out of control. the yield curve continues to flatten. critically, it does not invert. >> i'm worried about it, too. i think we need to watch it. the 10-year treasury, high 230's is meaningful. here is why. the history of inversions is such that it is tending to be a reliable forward indicator of recession. >> whatever you think about the way the world is supposed to work, it does not work that way in the last two weeks of the year. yes, yields have been going up. i think it's a function of very strong equity markets. if they were to correct, they would go back down. i want to see them stay there after the first of the year. jonathan: joining me in new york city is greg peters, george goncalves plus, matt toms. thank you very much for giving us your time. i know you were trying to run off and get away for the holidays. let's begin with the statement we have seen throughout the week. m

the flattening i think is what we expect.moves we saw overnight, this surge in yields on the long end? not just in the treasury, but in europe. are we fracturing and more economic growth for tax reform? these, givenmming the extreme position we have seen for more further flat yield curve -- yield curve flattening? u.s., it think in the has a lot to do with tax reform. the market is starting to price in the likelihood of it happening. in our view, the inflation impact is more a 2019 story than a 2018 story. at the end of this year or early next year, a bit of pricing in. a 12 month target of 2.5% on the 10 year treasury. we think probably some excitement right now. that will taper out. in europe, not too surprising. i am moving closer and closer to the tapering of the program. strategy, wend our have a limit on european limit bonds. they have been benefiting from the qe programs. it is a space they should be cautious on. yvonne: does this change the trajectory of the dollar at all? which has been missing in action from these b

this story is curve steepening, not flattening. still ahead, the final spread.k ahead features a glimpse of potential political trouble in europe. this is "bloomberg real yield." ♪ ♪ jonathan: i am jonathan ferro. this is "bloomberg real yield." from new york city, it is time for final spread. coming up, u.s. and european markets closed for christmas. a light week of events. u.s. economic data, and the italian prime minister is expected to hold a news conference marking the end of his administration and the start of the countdown to spring elections. still with me george concalves, greg peters, and matt toms. i feel like we had spent the year worrying about european politics, and it has yielded very little for our efforts. why should we be worried about politics now, if at all? matt: ultimately you need to look to the change of the ecb leadership at the end of 2018 and into 2019. the political framework in europe will guide how much leash the ecb gets. if you infuse volatility ahead of that, that could create some turbulence in markets. that is not being talked

the flattener.olds going into 2018 jonathan: i can't figure many people think it will go the other way. greg: i see the consensus flipping around depending on how the curve moves. jonathan: of christ sets narrative? -- price sets narrative? greg: you are having potential he a lot of bonds hit the market and that could change the price. jonathan: matt? matt: ultimately the dollar weakness has allowed this flatness. it's important to 10% decline in the dollar has allowed the fed to push expectations of two 2.25. that flattened the curve. growth could push the backend next year. jonathan: just to bring the dollar dynamics and the next year, i was looking at the forecast for g10 and could not believe how you did the forecasted price action is for euro-dollar. some people think it will be a nothing year for g-10. do you share that view? matt: it was voll is dead, long live voll. it is unlikely to be that muted. you have central banks in diametrically opposed positions. the ecb and japan are heading in th

as we see the flattening of the yield curve, is it a signal for the u.s.it also something that is going to negatively affect the u.s. economy. well, julie, certainly the flattening yield curve is one of a couple of indicators that would indicate economic weakness in the year ahead. 2018 looks pretty good good -- pretty good, but for 2019, we are going back to maybe 2.5%, 2.25% because there is more stimulus in the front-end, but what is sustainable in -- overtime in a higher-interest rate environment, especially at the short end will be a question mark. joe: john, what about the tax bill? does that change your outlook for 2018 in any direction? john: yeah, joe, it did increase our short run look for 2018 as you are adding to consumer incomes and corporate profits, but that is what we get the 2.7%. 0.2,e giving you about 0.3% on that. but for us, joe, it is a short run impact. there is no sustainable impact until we see some gain in labor force participation rates and productivity numbers. that is going to give us something more like 2.5% to 3% if we can ge

the flattening and flattening, infinity flattening. would suggest that the tax cuts could unseat the flattening. christophe: if we have tax-cut, a very strong impact on the u.s. economic growth from next year. and for following years. what we could expect is a steepening curve in the u.s. not necessarily for next year but for the following years in 2019. and inflation for the time being is under control in the sense that the phillips curve is sleeping and should continue to sleep for one year. manus: the phillips curve is asleep. christophe: exactly. if you look at the situation, the phillips curve is steepening we are in aecause fantastic [indiscernible] and you have a disruption in markets. inflationary pressures are low. including in the u.s. ,f you look at the global label the phillips curve is active at the global level. take into consideration if you expect the continuation of the global growth us we were discussing a few minutes ago, [indiscernible] is declining according to our models. we should expect to percent growth at the

the yield curve continues to flatten. it does not invert. >> i am worried about it, too, and i think we need to watch it. --year treasury -- hi 200 gh 2.30 is-- hi meaningful. >> he does not work that way in the last two years of the year. -- two weeks of the year. yields have been going up. i want to see them stay there after we get through the first of the year. shery: a variety of opinions. joining us now for more insight is brian chappatta, who covers treasury and rates. great to have you with us. the chart showing you the yield flatten.tinuing to the 2.10, especially, near the decade low. does it have all to do with where inflation is headed next year? i think the last push was to the point of the last person on the montage -- everyone is tightening of portfolios. they are buying treasuries, taking gains from equities, putting them back into bonds. it will be interesting to see once we get past january 1 whether this flattening continues because there is a lot of demand for duration right now to put in your portfolio

julien: i think that is in the big story this year, the flattening of the curve.f you think back, the narrative was that the new administration was going to push progrowth policies, things like tax reform, infrastructure spending, deregulatory agenda. that western asset we were at the view the legislative agenda would take longer to a out. we are concerned inflation could move lower. over the course of the first half of the year he saw some of that optimism begin to fade and the curve flattened significantly as they realized inflation came in lower. that is what is driving the long end of the curve in our minds. we are in a highly disinflationary environment where it doesn't always follow the upsurge in cyclical strength like it has done traditionally. that could come at some point in the future but you couple this inflation with high debt loads and you end up with low rates at the long end of the curve. julie: we remain with that inflation challenge. we have got a chart that looks at inflation expectations. that's versus the curve. it shows people are not expecti

flatten, absolutely.rates out to the 20 year point and then you will have downward pressure on the yield beyond. we expect the flattening in the u.k. and of course a flattening of the yield curve in the united states. david: it is a consistent theme. flat. >> we will discuss global growth and what it means. decline in more than two years to we will discuss for commodities next year or is this just speculation? this is number. -- this is bloomberg. ♪ alix: here is your across asset check on wednesday. selling into the close he came the theme of the last few days. he and stocks down by .5%. the dow down over 1%. the euro-dollar modestly flat. take a look at what happened with the dollar-yen. it still retains safe haven bill .t least for today down by about three basis points to 52 basis points in red, we were talking 62 basis points if he weeks ago. continuing to roll over off by 1%, about two hours ahead. >> we thought it was tied at 72, 75. we want headlines and for that, we turn to taylor riggs. taylor:

that flattening yield curve in china at the moment.g at the size and growth of these financing vehicles. these have been the main funding vehicles for projects in china. do you think you'll get the reserve requirement in q1? and have you want to position for that? >> it is a tight balancing act for china. , our eyes arened keen on china. a have the highest amount of cash. they will support their export driven economy. utilize those cash balances in a more efficient manner. they try to get their cash better allocated. --r the long-term some trouble .8% of china's that was at risk, trading in indonesia and india as the emerging key markets. this is according to the imf. we talk about the contagion effect. let's talk about tech. , thisn the united states tech bashing, what is the ramification, the contagion -- there two things at play. the market is desperate for correction. it has been a low -- the largest correction we have seen in stocks are those that have gained the most over the year. cases lead many markets higher over the year. we

a range ohraded in year because the curve is flattening.e expect those dynamics to continue next year. there are not many inflationary pressures coming through. we are at the end of the cycle where the curve does flatten. ultimately it flattens out and we get a front-end rising and the back and stationary. we think we want have spiking yields during the next year positive headline on tax, but we don't think we are breaking through to a new range. there is still a narrative in the market the because of the 30 year bull market in bonds that we have to go into a long-term bear market. in aink the idea we can be sustained arranged in yields can persist for a while longer. tracy: right. mark cudmore, our strategist in singapore there. .et's get more with mark tinker he joins us from hong kong. take onious to get your what happened yesterday in the u.s. market. disappointment over the tax reform, this discovery of the unpleasant surprise hidden within the legislation, or something like windowdressing at the year end and profit-taking as the marke

we have flattening, flattening, flattening. francine: tom, this is but i am looking at.itely a risk off kind of mood. bonds are advancing and treasuries are climbing. a lot of folks in the u.s. are worried over the government shutdown. that is on saturday. my them also looking at pound because we are looking at a possible rebellion -- yes, another one. bitcoin, over $12,000 as well. this is the belly of the curve. the five to seven year spread. the difference in yield between the seven year in the u.s. and the five year -- this is extraordinary, the stability here. this examination on this long chart is extraordinary. francine, i have never seen this. francine: i really like your chart. we need to ask philipp hildebrand about that. onare looking to agree concerns over a partial shutdown over the u.s. government. that means we are looking at the longest losing streak in two years. that is what we will talk about with philipp hildebrand, the vice chairman of blackrock. he served as the chairman of the swiss national bank and was the man behind the 2011 o move of te franc t

it is flattening. it has been flattening. some are concerned about it.e say, rates are so low that it is different this time. the yield curve is not giving the same signal, if it ever gave a clear signal in the past. mike: a couple of important things here. firstly, the yield curve flattening has never been a sell signal. when the yield curve inverted it was a sell signal. it is not a risk in the near-term, but it could become one. you have this complication of will the yield curve flatten? historically, it flattened as the historical output closed. with quantitative tightening this time around, it is less certain you have the same degree of yield curve flattening because of the removal of central bank stimulus in the form of qe we have had. but then you add, what is the yield curve does still invert? is that still a sell signal, warning of an upcoming recession? ecb is still producing, holding down the yield curve. , i would arguend that actually, there is a transmission mechanism whereby the yield curve inverting means that banks want to lend less beca

the yield curve has flattened some, mainly the flattening yield curve reflects higher short-term rates. the yield curve is not currently inverted and i would say that withinrent slope is well the historical range. between a correlation yield curve in versions and recessions. let me emphasize the correlation is not causation. i think that there are good reasons to think that the relationship between the scope of the yield curve and the business cycle may have changed. that is that the expected average value of the yearsrange is set for 10 and the second piece of it is a so-called term premium that often reflects things like inflation and inflation risk. typically, the term premium historically has been positive. so when the yield curve has meanted historically, it that short-term rates were well above average expected rates over the longer run. that's what it means. typically it means that monetary policy is quite restrictive. some of those recessions were situations in which the fed was consciously tightening monetary policy because inflation was high in trying to slow the economy. wel

what does this look like next year, this relentless flattening of the yield curve?an anything turn that around? richard: what i would say is i don't think the yield curve is all that much of a mystery. the slope is comparable to where it was in the last cycle. once you adjust for the decline of neutral rate. people talk about inverted curve. i agree, if we get an inverted curve, i start to worry, but i think of the fed gets the funds rate up and we get the data we are thinking we are likely to get, i don't see the curve inverting. where you get an inversion if the fed overshoots neutral. if we get a big overshoot in neutral, we will get an inversion. i think i don't see it. jonathan: if we can stick with this chart, it's an example of a -- example of where the pressure of the yield curve is coming from. it's pushing up much higher over the last 12 months. as you look at that break down, 10's have not done a lot. it has all been on the twos. what will that look like next year? oksana: let's talk about the pressure on the 10's. potentially, investors view banks as inf

wax i want to look at the yield curve, which has been flattening a lot. a look at the white line, this is what we love. if you look at the blue line, something interesting emerges. these are overnight index swap rates. what happened, you have this big divergence opening up in 2014 and 2015 at some of the new banking regulations were phased in post. that widened this bread between swap rates. it made the yield curve almost artificially steep. a lot of the flattening we have seen is just catching down to the flat curve, which is 25 basis points flatter and closer to inverting. the second thing is the yellow line, which is the change in interest margin. cycles,ous tightening banks were able to increase net interest margins when the yield curve widened. they tightened when it flattened. this time, that's not happening. banks are not affected by this. vonnie: that is fascinating. we are up 4148 in the chart library. we have christina across the pond. tv inflation.out we looked at the inflation data out of the u.s. 37% year onv's rose year. that is why it's als

a lot of people think this has been extended, but flattening is quite normal. next year, we will start getting to a flat curve or inversion. we get inversion towards the second half of next year, that is implying recession in the u.s. towards 2020. the curve should continue to flatten, so yields would come lower but in volatile fashion. david: i can't let you go without asking about the bank of england later on tonight. inflation is passed their target. what should i could watching the? re? the bank of england can't do anything too radical at the moment. people will be wondering about the forward guidance. the market isn't really expecting another hike until the possiblyof next year, the earliest. there is a chance given the data, the bank of england might want to prepare the market and move it forward. an uneven linew because they don't want to prepare the market for a definite hike next year, they want to leave the options open that they might accelerate if things go well on brexit. that is the uneven line they have to work out. there is a chance they mess up

that is one side of the flattening conundrum.er side is the front of the yield curve is discounting this tightening happening. the market is expecting the fed will deliver to rate hikes. there are other central banks that will likely follow in fashion, so that will continue to keep rate hikes going, so the yield curve will end up in a flat and inverted state. betty: why are treasury investors and bond investors , uncertain i should say, about the impact that the gop tax bill? loserse are winners and on the tax bill. if you look at it specifically in the corporate investment-grade bond market, returns in sectors with high tax rates have in negative effects come in so the market is discounting that not every company and sector will benefit from this, and there is a general sense in public it opinion -- public opinion about whether this will go up or not, so there is an uncertainty factor. we don't know how much growth sol be coming from this come the bond market feels this uncertainty and said there is no reason for a steepening of

julie: flattening everywhere or at least here in their.n the u.s., a very different picture is all three major averages rise. seen confusion about how marco rubio will vote on this tax bill. fox reported rubio was said to be a yes on the tax bill. e of the senator says he still plans to vote no. typically, he has stuck with the party lines. we will see what happens. stocks did rise to highs of the session following the initial headline. they are still rising. the dow and s&p still on track to close at records. we saw the effect in the bond yields are rising to the highs of the session. only up to the basis points. selling in the treasury markets. where we have seen remarkable gains in yields is on the two-year. this is having an effect on financials, the ripple effect of higher yields. j.p. morgan, berkshire hathaway, and bank of america the three largest cap financials contributor most to gains today because of their weight. health care was the worst performing group yesterday, it and materials. it is bouncing back led by drug distributor

this home behind me is completely flattened. across the street there is a house that seems untouched. behind that there are four or five houses that are flattened and a look a lot like this. there are cars that people just left when they had to evacuate this area as we were driving in you can see a lot of the fires still in the hills. this neighborhood, for the most part, is smoky and difficult to see. it seems like this neighborhood , the flames have cleared out of this area for now. there is a lot of damage left behind. this house is one of many in this area that seem to be flattened . >> thank you so much. thank you for that live update. we will continue to check in with her throughout the morning . some of the people in the evacuation centers in southern california say the holiday season is an especially tough time to be away from their homes santa must have heard them. he showed up at one of the evacuation centers, handing out candy canes and giving out hugs. much needed hugs. people who do not know if their homes are still

that yield curve flattens.ou've got a situation where either interest rates go up or growth expectations start to get squeezed down here and see those rates going up. stillhough inflation is relatively subdued. alix: what about the fed not buying his many treasuries and foreign investors not buying other assets as the central banks turn. that is the case for the steepener. of 229have done a survey asset allocators. what people expect is the low end yield is going to go higher. you might start to see a bit of a rise in those 10 year yields. the danger is how far can they go with or you start to see bonds look attractive compared to equities. when you look it equities compared to bonds, watch out. even at these levels, the bonds are starting to look attractive. it's hard to get those treasury yields up above 270. expected to see the two-year yields rising as the fed will raise rates four times. david: the other phenomenon we saw was the weakening of the u.s. dollar. we will go to a chart here. as you go forward,

coming up, it is the final flatten her.ush as spreads hit the tightest levels in the decade. a warning of financial instability due to low interest rates. betting against boredom. the s&p on track for its best year since 2013. nervousness about next year is popping up as traders prepare for an increase in volatility. and cold weather, hot commodities. an arctic cold spell gives natural gas a boost. copper continues to rally, with its longest run in games in three decades. we are about 30 minutes until the opening bell. s&p futures up about three points, euro/dollar up about 0.5%. against the best dollar since 2003. yields moving a touch higher after the huge selloff in yields yesterday. the 30 year yield yesterday at one point

the immediate blast zone would be immediately flattened. a moderate than light damage zone would spread out for several miles. it would be deadly, but millions would survive the initial explosion, making radioactive fallout a major concern. >> there's a lot of shelter opportunities in a city that our analysis shows can keep people safe. >> a concrete structure is the best structure. the middle floors are safest, fallout on the roof and the ground outside make the top and ground floors the least safe. if there's a basement, it's your best protection. even a wood frame home could offer enough protection from radiation sickness. you get inside, as close as you can to the center of the home. >> people practice what they're supposed to do during an earthquake. and i would like to see the same kind of of attention paid to nuclear preparedness. >> reporter: which is why coastal ventura county is considered the nation's public health leader in preparing for an emergency. >> the county created public service announcements and an 18 page guide for it

and flattening .h of these have seen a bit of a bump up as of late, this chart does not show a terribly sanguine outlook on the economy. indeed, many of the economists we have talked to have look for a couple of percentage points of gain in gdp as a result of the tax cuts annually. this despite the touting we have heard from the president and from the likes of paul ryan. echoing sentiments i made myself during the show, but that doesn't mean i'm biased. let's go with a stock that rose 3000% in the prior five years. this year it's down 12%. in its five years prior to this time, it also fell. we had five bad years and five good years. the big question is, are we going to reverse things this year? analysts say no. it will rise next year, breaking the five-year down. this year hasem been a excessive market expectations for its melanoma drug. what a wonderful story. 3000% in the five years through this year. market, i lied. i was biased. so, the winner is julie hyman with good numbers. could i be any more

economy is going curvell out as the flattens out?is the implication of the curve flattening out. that is the message it is giving we willthat is a risk see slowing down. i think when you look at the global stock markets and in particular, the u.s. stock market, but that is saying is there are -- there is a lot of beingews burning gas brought in from 2018. that will be a worry for markets. your expectation around the u.k. getting a decision from the bank of england. do you see the bank of england being more hawkish? i saw a story that it could push up the pound if the bank is more hawkish given the breakthrough we have seen on the brexit negotiations. do you join those two things together so soon? thomas: no. the bank will remain cautious. we had a bit of a success on friday but the outlook regarding brexit, for the u.k. economy as a whole, productivity, growth is pretty subdued. there is no pressure on mark carney to raise u.k. interest rates any further for the time being. would you call that a success what we saw a question market

curve flattening, 56 basis points down from 61.60 2 -- 61, 62 and further flattening due to the higherlease. the vix, 11.64. the yield should be green on the screen for the 30 year, one basis points higher yield, 2.77%. you can see the two-year yield getting out of the facility --vicinity of 2%. guy: what gets my attention is cable move.- down .4%. part of this due to the data. disappointing consumer data out of the u.k. i think it is a brexit story more than anything else. what has changed in the last hour since we got the board up is we see a selloff in european equities. are not seeing it in the fair values on my bloomberg in the united states yet. european equities are beginning to feel a little bit of heat. bitcoin, we talked about, potentially headed for another record high and the singapore contract down by 2.1% overnight. tom: in the last hour we were talking about the telegraph writing about flows, real interest rate differentials, but also flows out there. bring up the chart if you would and this is the elephant in the room, the transatlantic room, the idea of the u.s. 10 yea

second, do you think that there is any fed blame or complicity in the flattening of the yield curve? are you worried there might be some sort of policy mistake built into that that could slow the economy? and the last question, which is a bit of a valedictory, is one that everybody on wall street has wanted to ask for you four years. can you tell us which dot is yours? >> well, i can answer the last question first. the answer is no, i have never been willing to reveal which dot is mine. and i'm not going to change that now. so, you know, my assessment, and i think most participants' assessments, as i have said, of the impact of the tax policy on growth has been informed by work by the joint committee on taxation. and other analysts, and everyone recognizes that there's uncertainty about what the economic effects would be, and i wouldn't want to rule anything out. it is challenging, however, to achieve growth of the levels that you mentioned. look, if the package were to stimulate growth of that magnitude, let me just say again, the federal reserve would welcome that. if it's a supply

we could see a flattened curve by the third quarter according to our rate strategist in our view, that'se normal for the late cycle dynamics. we're focused however on the ecb. if the ecb were to come out more aggressively and talk about tapering their programs more aggressively, we think that could help maybe put a slow downin the flattening and steepen the curve. obviously people have been focused on global rates and how they anchored the long end of the u.s. curve >> we checked in with gary cohn this morning on the jobs number and the tax bill in conference and the degree on which there may be movement in that salt deduction as they talk over the weekend. here's what he said. >> i've heard the salt, state and local tax deduction argument many, many times we are concerned about that. this morning we were talking about the s.a.l.t. issue, and what the potential s.a.l.t. fixes are. there are 70 members of the house from s.a.l.t. states they have to have a solution to allow residents to come away with this in a position that allows members to support this no one wants to see tax increases.

to do next year >> flatten i think the fed will err on being far too tight it will take the overnighted funds rate three times higher, maybe four times, maybe 100 basis points beyond where it is now the long end will be a bit in price a bit better, in yield a bit worse. i think we're going to inversion before the end of the year if i have a fear, it's that the fed will err, take the yield curve from a flattened position to one that's inverted >> great run for oil and copper this quarter what's your view on that will it continue >> oil and natural gas are having a great several weeks here because of the cold weather that prevails. i think you can continue to get a spike in natural gas, you will be surprised how much higher nat gas can go any time you get wti above $60, that makes almost the worst fraccers out in the permian basin all profitable i think it will be difficult to get wti above $61 a barrel >> good to speak to you. >>> if you want to kick old habits in the year, consider a close look at sin stocks in your portfolio. landon dowdy has more on that. >>> if you have sin stocks

us the flattening of the yield curve taking place.here is almost this final push for this to happen. yield on to an tenure treasuries just 50.6 basis points, closing to this decade low which is reached on december 6. a small part of this really coming from markets shifting to a new benchmark, one of the biggest single session shifts. the final flattening push, it appears to be money managers that essentially want windowdressing to tighten up their portfolios before the year finishes. that is the bond market. a look at what is going on with the start of the trading day at singapore, taipei, and kuala lumpur. it's get a look at what is going on and how things are shaping up. >> lets kickoff with the open in besti with clocking the they in two weeks, continuing the advance. the year's games have not been able to claim the 11,000 mark given some investor caution around iphone sales. we see stocks under pressure, and in kuala lumpur, we see a flat open. it's get a quick check of the assets in focus. rebounding just a touch after the declin

. >> this issue of a flattening yield curve, many have put it off as being down for other things.you subscribed to the view that it does not signal a slowdown ahead? >> the yield curve has flattened, and we are a little bit more than two rate hikes away from an inverted yield curve, and that is usually a precursor of a recession a few months later. that is something we have to watch for carefully. i think that is the most important data point. another one is high yields which have widened. you have all these yellow flags that you have to be very cognizant of, and it looks like 2018 will be a lot more volatile than 2017 was. >> we put that yield differential on the bloomberg as we speak and the spread between -- we have added gold futures. as it comes down, it could be a headwind for gold as well. a lot of discussion about the world post. hiking rates, reducing the balance sheet -- do you think the fed is making a policy error ? >> that is possible. you have inflation, which doesn't seem to want to materialize, and i think the reason for that is strong demographic forces. the other

the yield curve has flattened some, the flattening yield curve mainly reflects higher short term rates the yield curve is not currently inverted and i would say that the current slope is well within it's historical range. now there is a strong correlation historically between yield curve inversions and recessions let me emphasize it's not correlation. i think there are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed and one reason for that is that long-term interest rates generally embody two factors and the second piece is a so-called term premium that often reflects things like inflation, inflation risks typically it's been positive so when the yield curve has inverted historically, it meant that short term rates were well above average expected short rates over the longer run. that's what it means and typically that means that monetary policy is restrictive, sometimes quite restrictive. and some of those recessions were situations in which the fed was consciously tightening monetary policy because inflation was

we are not there yet, but the curve is going to flatten. and deficit and tax cut, short-term rates are going to rise quickly and much faster than long rates. long rates are pinned down by what is going on globally. if this curve gets inverted, that would be a bad sign. the curve inverts 12 to 18 months prior to recession. david: square two things for me that i cannot reconcile. you have the stock market going up and up. that should be anticipating future earnings. on the other hand, you have the long end of the yield curve going nowhere. why don't they sink up? -- sync up? mark: they will. the reason the stock market is rising is arithmetic. earnings are going to rise. you attach the same price-earnings multiple to that, you get higher stock market. this is just. arithmetic. -- this is just arithmetic. eventually the market will focus on what bond market buyers are looking at. >> the fed president said he was not concerned about the buildup in consumer debt. that does not seem to be that much of a problem in terms of systemic risk. do you a

>> everybody is worried about the flattening of the yield curve.ou can see the projections out there. if we continue to flatten at the same pace we have been, there should be an inverted yield curve to greet us maybe spring or summer. i think people are justify bly so concerned with the flattening of the yield curve it's still premature i will tell you the more we look at the fed governors, some dovish ones, what do we hear yesterday? some of them are still concerned with the lack of inflation maybe we should skip december. december is all but factored in as far as a rate hike. i think they should look at it there's no rush with inflation the way it's been tamed to raise rates what are you doing it for? you're staying ahead of what curve exactly? i think the market would greet it with bullishness. i don't think there's a rush to chase the inflation curve. >> what do you make of the move lower? dramatic move lower in copper in the last 24 hours. it's tied to economic -- it's considered an economic indicator. how much should we read into that >> you

the flattening trend continues.s, a bit of work folio repositioning. -- portfolio repositioning. carol: for more on the flattening curve and other things, michael holland joining us. i have so much to talk to you about. the flattening yield curve, is it a precursor to something more ominous in the u.s. economy? michael: i think rates one year from now may have been the big story because we are set up for a surprise. you use the word quiet, taylor riggs, the markets have been relatively sanguine for investors the whole year, the yield curve, as we look back a year from now, it is likely we will have had a surprise in the bond market. carol: what does that mean for investors? michael: it could be the long anticipated correction in the stock market. that may occur. i am not predicting it. trying and do not know anyone who can. at the end of the day, when you look at what we have been through and what people are ready for, the investor psyche is not ready for a surprise. surprises did not occur in the past year. nejra:

>> i think there's a plot -- flattening trend due to the fed.ome big structural factors holding town long-term yields -- down long-term yields. this is the reason why rate differentials are not driving the fx base. the rates market is preoccupied with this trait in the u.s. curve, and therefore rate differentials have dropped out of the driver of fx. but does that mean?fx investors mean?fxdoes that investors in euro-dollar-dollar-yen , what are those things they're looking at? the example, the continuation of the ecb taper. drives a when a bank big signal in its balance sheet, that drives currency. when it goes from nothing to driving that, it's a negative factor. in the ecb's case, when it's a signal that qe will end, the sovereign portion, it will be a supportive factor for the euro. this will pick up in 2018 think. francine: bunny bring it to the mitchell charts. this is way back in 1987. this is what it looks like chamomile and. go?much higher can this >> we think it can go higher. the reason is, based on a number of factors, the most import

of the flattened he'll curve, many have written it off as being down to other things.you subscribe to that view, that it does not single an impending slowdown? >> well, the yield curve has flattened, and we are a little more than two rate hikes away from an inverted yield curve, which is usually a precursor of a recession a few months later. that is something we have to watch carefully. that is the most important data point we are watching right now. another one is high-yield, which has widened. you have all these yellow flags that you really have to because isn't of -- have to be cognizant of. there is a little more risk than 2017. yousef: when you put that yield differential on the bloomberg, treasuries, we also added gold futures because as the differential comes down it could be a headwind for gold. a lot of discussion about the world post december in terms of rate hikes. hiking rates, reducing the balance sheet, do you think the fed is making a policy error? >> that's absolutely possible. now you have an economy that is growing, but by historical standards at a sl

it is a flattening yield curve right now, and if we get a nice economic pop in the u.s. whatever reason, then the fed will feel more comfortable and confident in raising rates so at the very least the fed wants a rate positive enough and they are beginning to be more confident there's going to be pass through inflation we're more modest on what the effect of this tax bill stimulus is going to be the fed might take away. that is going to be less of a risk if you look at japan is going to be in qe for maybe the rest of our natural lives and the europeans are stretching out and buying time to see how that unfolds in the u.s i think the big wild card going into 2018 is what the fed does in detail with their balance sheet. >> i think at this point the flattening yield curve has been so kind of chewed over for so long, and people have tried to decide if it's different this time i think it just represents where we are in the cycle. at this point in the cycle when the fed's pretty far along in a tightening mode, it's going to flatten. if we did get it to resteepen after the tax